This post is a guide for how small business could approach creating a strategy. This is only one example there are many other ways to approach creating a strategy. This is a simple guide designed for small business owners.

I have another post on “What strategy means for small business” which explains what strategy is and is not. That post also covers the three main theories for strategy.

The objective of creating a strategy is to create a sustainable competitive advantage to keep the business either;

1. In a niche  market with no or little competition, the creative part is finding and keeping this new or unpopulated area in the market to make sustainable profits.
2. Develop superior capabilities abilities to dominate the market in which you compete,  the creativity comes with understanding how to add more value to customers over sustained periods.

I will make this post a list even though the reality of this strategy creation  process is that its not as simple as a list of tasks to follow. Strategy is effectively a creative process, but before creation you need to understand the context in which your business operates. The other point is this process should involve as many of your staff as possible.

Step 1) – Simple SWOT

I like to start with a simple SWOT. SWOT stands for strengths, weaknesses, opportunities and threats. SWOT is a good starting point because the concept is simple to understand and you can quickly get both and internal and external view of the business.

• Strengths – are the internal capabilities that you excel at
• Weaknesses – are the area you need to improve, be honest with yourself, if you have no where to improve then you have less room for growth
• Opportunitiess – are external market based situations which the company could take advantage of.
• Threat – are external things that may impact the company.

Successful businesses build on their strengths, correct their weaknesses and protect against internal vulnerabilities and external threats. They also keep an eye on their overall business environment and spot and exploit new opportunities faster than competitors. SWOT analysis is a tool that helps many businesses in this process.

Step 2) Porter 5 Forces

To understand the market in which you operate a great analysis tool developed by Micheal Porter is called the 5 forces model. This model will help you identify if you are in a market protected from strong competition or a market with high competition. This model provides a useful snapshot in time therefore  to remain relevent you must revist your porters analysis regulary.

For more detail on porters five forces

Step 3 ) Customer Analysis or Market Segmentation

I use customer analysis to understand existing customers where as I use market segmentation to understand new or potential markets.

Customer analysis provides a real insight into the current customers of the business, this group of people will make and brake your business so you better know them well. I like to classify customers in terms of the following

• Customer Type – a grouping that makes sense
• Whats they buy from you – the products or services this group of customers buys from the company
• What they are worth the the company – The 80/20 rule is that 80% or revenue comes from 20% of customers. Its important to focus your attention on the customer who generate the most profit or potential profit for you.
• What is the company value proposition – why does this group of customer come to your business rather than your competitors.
• Leave a blank column for what strategic tactics will address the needs of these customers.

After finishing this analysis of the customer it becomes clear what the existing customer think of the company. The trick hear is not to only focus on existing customer, Existing customer are in existing markets therefore you must also think of new types of customers or additional products.

Market segementation looks at categories of customers within the market as opposed to customer of the business. This is done by classifying the segment using the following criteria.

• Classification – grouping of the segment
• Reasons to choose one competitor over another – list of things the segment values
• What are they primarily driven by – what primarily drives the decision making this is generally in one of  price, quality, service, convenience , relationship etc
• Demographics & Psychographics – what is the unique characteristics about this group of people.
• Most likely choice – who would they choose to supplier the goods or service they require

The information you get from a market segmentation is the where you should position yourself, because the main point to remember you can not be all things to all people.

Step 4) Competitor Analysis

This step is important if you compete in a crowded market. Understanding competitors can give you insight into there strengths and weaknesses.

• Competitors Name
• Location or proximity – how close are they in terms of ability to sell to your customers
• Products offered – what products or services do they offer
• Competitive Advantages – what is the competitive advantage of this competitor
• Target market – who are they chasing
• Threat level – how concerned should you be about this group.

The idea behind understanding your competitors is to know what is being done in you market but more importantly what customer needs are not being addressed these become your opportunities.

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